George Osborne prioritises fairness over toughness

Osborne’s blast at the debts left behind by Labour was the right way for him to start his speech today. He shouldn’t be shy about making this point again… and again… and again until we are all bored to death.

It can never be said too often: Gordon Brown built a tottering castle of lies about his borrowing binge. Here was a man who could run up a trillion of extra debt, borrow a quarter of everything the government spends, and yet still go on telly with a straight face to promise that “there will be no cuts”.

He didn’t just leave behind huge debts. Brown’s decision to treat us like idiots has left a political legacy which still hangs in the air like a bad smell.

For example, today the left are hopping up and down about the coalition’s plans to take child benefit away from top-rate taxpayers. They claim the Tories implied before the election that they wouldn’t means test child benefit. If indeed they have changed their tune, I regard that as good news, not bad. Gordon Brown deliberately created an atmosphere of total unreality regarding the deficit, and the sooner Britain snaps out of it the better.

If Labour rush to defend benefits for the richest people in Britain they will look ridiculous. The left has traditionally has argued that we need universal benefits because otherwise some needy people will be too proud to claim. In fact, more than nine out of ten people entitled to means tested Child Tax Credits take them up, and the few people who don’t tend to be better off, and don’t need it. Wasting billions to get a few extra people to take up benefits cannot be a priority.

32 percent of all benefits paid out last year went to people who have higher than average income, and the better of half of the country receive a total of 53 billion pounds in benefits. Cutting middle class benefits should also create political space to expect more from people of working age working age people who don’t work.

However, we shouldn’t confuse that with the other policy Osborne announced today, which is a very mild reform. He announced that there will be a maximum limit on benefits for those out of work, set at the level that the average working family earns. I think that's almost impossible to argue against. I haven’t seen the figures yet but the suggestion is that it will affect around 50,000 people and reduce their benefits by an average of £93 a week. That would save £242 million a year. To put that in context, we spend around £80-90 billion a year on benefits for people of working age.

I wonder if they shouldn’t be going further. The coalition’s child benefit reform will save £1 billion. In contrast, the Institute for Fiscal Studies has suggested aligning the withdrawal of Child Benefit with Child Tax Credits, which would save £5.5 billion. Yes, child tax credits require annual means testing, and yes, there would be a lot more people losing out. But it would avoid a sharp cliff edge for higher earners, and personally, I think it would be a less unpopular cut than many others.

However, I’m not a politician.

Osborne is a smart tactician, and has bent over backwards to produce something that’s fair, and seen to be fair. As he said in his speech: “a system that taxes working people at high rates only to give it back in child benefit is very difficult to justify at a time like this. And it's very difficult to justify taxing people on low incomes to pay for the child benefit of those earning so much more than them.” Quite.

Withdrawing Child Benefit only for the very top earners only puts Ed Miliband in a difficult position. Osborne presented his case in his speech brilliantly, and Ed Miliband now faces a really difficult choice about whether to oppose it. The ball is in his court.

I don’t know if it will be, but I hope that Osborne’s speech is the beginning of the end of middle class benefits, and the start of a radical reshaping of our benefits system. We’ll know more after the spending review on 20 October. Watch this space.